Iowa Utilities Board

1. Iowa Utilities Board William D. Rogers Vice President and Treasurer

2. Agenda • American Water’s Debt Structure • Comments on Double Leverage • American Water’s Investment Philosophy and Governance • Effective Allowed ROE’s at American Water Subsidiaries

3. Debt Structure of American Water and Subsidiaries American Water Works (“Parent”) Iowa American Water American Water Enterprises $1,016mm in Promissory Notes $1,016mm in Long-Term Debt Pennsylvania American Water Missouri American Water $2,396mm in Promissory Notes $3,412mm in Indentures / Agreements American Water Capital Corp. (“AWCC”) Long-term Debt Lenders $2,396mm in Long-Term Debt $3,412mm in Long-Term Debt Illinois American Water Indiana American Water New Jersey American Water Other Regulated Utility Subsidiaries • In 2011, AWCC interest obligations were satisfied by $142.2mm (66%) from Regulated Utility Subsidiaries and $73.1mm (34%) from the Parent. • There were no capital contributions by the Parent to AWCC in 2011. In addition to borrowings from AWCC, utility subsidiaries borrowed $1,756 million from other third party lenders as of September 30, 2012.

4. Comments on Double Leverage • The mere existence of debt at the parent and an equity infusion to a subsidiary utility does not necessarily mean the debt proceeds were utilized to contribute equity to the utility. • Borrowings at the holding company level do not imply abuse of the utilities by the parent. • The capital structure analysis for the regulated utility should focus on the capital structure and financial integrity of that utility subsidiary, not that of the subsidiary’s affiliates. • A double leverage adjustment reduces the opportunity for earning the allowed return on equity, thereby reducing the utility subsidiary’s attraction as investment when compared to other alternatives.

5. American Water’s Investment Philosophy and Governance • American Water’s utility subsidiaries invest $800 to $1,000 million annually. • After approval by the subsidiary board of directors, the subsidiaries submit their investment proposals and plan of financing to American Water. • American Water segregates investment opportunities into two broad categories. • First, American Water approves investments necessary for safety, compliance and system integrity. • Second, additional investments are then presented for approval based upon the investment’s ability within a regulated utility jurisdiction to earn a fair and competitive rate of return. • The fair and competitive rate of return is evaluated against other potential returns, American Water’s availability of capital, and American Water’s cost of capital. • Investments within this second category, to include acquisitions within a regulated jurisdiction, are ranked according to the above criteria.

6. The Double Leverage adjustment is a substantial reduction in the effective allowed ROE in Iowa. Effective Allowed ROE’s at American Water Subsidiaries

7. American Water: The Premier Water Services Provider in North America • $12.4 Billion Enterprise Value • 1 Million Average Volume Shares Traded • $6.6 Billion Market Cap • $2.7 Billion in Revenues • 28.77% Total Shareholder Return for Last 12 Months • Current Dividend Yield: 2.7% • 15 Million People Served • 46,000 Miles of Pipeline • 7,000 Employees • 1,100 Communities Market Statistics* Resources * Data as of September 24, 2012

8. Continued Commitment to Quality and Reliability – Hurricane Sandy Hurricane Impact Affected AW operations in NJ, PA, MD, VA, NY, WV Population served: 6 million people Numerous AW treatment, pumping, SCADA systems lost power Minimal loss of water service Estimated less than 2000 in all states No employee injuries Keys to mitigating impacts Investment in infrastructure Effective/updated emergency preparedness and disaster planning Committed, highly skilled employees Mobilization of cross system resources Coordination with federal, state, local authorities, health agencies, PUCs Customer communications Facebook, Website, News Media, Twitter Fire Hydrant at intersection of Route 35 and Herbert St., Mantaloking, NJ NJ American Storm Command Center American Water crews at work during storm

9. Quality Control and Research Laboratory in Belleville, IL • Opened in 1981 and known as one of the most comprehensive water chemistry laboratories in the world • Run over 1 million sophisticated tests and measurements annually • Continuous monitoring of the quality and security of our water supplies, treatment facilities and distribution pipe networks • Achieve drinking water compliance level of 99.99% • Realize cost savings with a central laboratory – 30% • Recipient of nearly 100 awards for research and detection • Collaboration with prominent researchers, universities and the United States Environmental Protection Agency to provide input to federal standards pursuant to the Safe Drinking Water Act

10. Address emerging water quality or regulatory issues Evaluate and recommend new technology to enhance existing operations Support operations with technical and operational expertise Support Corporate Business Development Support Innovation Development Process Enhance Corporate brand through industry Thought Leadership Research Program

11. Research Program • Environmental Compliance / Stewardship • Research • Innovation Development Program Engineers Chemists Microbiologists Environmental Scientists 8 PhDs 5 Masters 4 interns

12. Scope Strategic: Wastewater, reuse, desalination, drinking water Operational: Infrastructure, treatment, analytical methods, energy efficiency Collaborations /Funding USEPA, various state programs, research agencies Competitive funding brings in about $600,000 per year Forms partnerships with leading universities, consultants, other leading utilities Thought Leadership Staff, on average, gives at least one presentation per week at local, regional, national or international conferences Staff members serve in leadership positions on over a dozen water industry committees or workgroups Scientists serve as editors or peer reviewers for most of the major water publications In 2010-2011, published nine papers in peer reviewed journals, and 5 books or book chapters Research Program